Utah Admin. Code 590-173-8

Current through Bulletin 2024-24, December 15, 2024

Section R590-173-8 - Credit for Reinsurance - Reinsurer is a Certified Reinsurer

(1) Credit is allowed for reinsurance ceded by a domestic insurer to an assuming insurer that is certified as a reinsurer in this state whenever the ceding insurer claims credit for reinsurance in a statutory financial statement.

(2) The credit allowed in Subsection (1) is based on the security held by or on behalf of the ceding insurer in accordance with a rating assigned to the certified reinsurer by the commissioner.

(3) The security is in a form consistent with Subsection 31A-17-404(7), and Sections R590-173-12 through R590-173-14.

(4) The amount of security required for full reinsurance credit shall correspond with the requirements of this subsection.

(a) Table 1 sets forth the security required for each rating.

TABLE 1
Rating	Security Required
Secure -- 1	0%
Secure -- 2	10%
Secure -- 3	20%
Secure -- 4	50%
Secure -- 5	75%
Vulnerable -- 6	100%

(b) An affiliated reinsurance transaction shall receive the same opportunity for a reduced security requirement as any other reinsurance transaction.

(c) A certified reinsurer shall post 100% security, for the benefit of the ceding insurer or its estate, upon the entry of an order of receivership, rehabilitation, or liquidation against the ceding insurer.

(d)

(i) A certified reinsurer may post security for catastrophe recoverables for a period of one year from the date of the first instance of a liability reserve entry by the ceding company as a result of a loss from a catastrophic occurrence as recognized by the commissioner.

(ii) The one-year deferral period is contingent on the certified reinsurer continuing to pay claims in a timely manner.

(iii) Reinsurance recoverables for the following lines of business, as reported on the NAIC annual financial statement related to the catastrophic occurrence, shall be included in the deferral:

(A) Line 1, Fire;

(B) Line 2, Allied Lines;

(C) Line 3, Farmowners multiple peril;

(D) Line 4, Homeowners multiple peril;

(E) Line 5, Commercial multiple peril;

(F) Line 9, Inland Marine;

(G) Line 12, Earthquake; and

(H) Line 21, Auto physical damage.

(e) Credit for reinsurance under this section is available only for a reinsurance contract that is:

(i) entered into or renewed on or after the effective date of the assuming insurer's certification;

(ii) entered into before the effective date of the certification and is amended with an effective date after the effective date of certification but only for losses incurred and reserves reported after the effective date of certification; or

(iii) new and covers a risk for which credit is allowed before certification based on collateral provided, if the new contract's effective date is after the effective date of certification, but only for losses incurred and reserves reported after the effective date of certification.

(f) A reinsurance agreement may establish security requirements that exceed the minimum security requirements for certified reinsurers in this section.

(5)

(a) After receiving an application for certification, the commissioner shall post notice of the application on the department's website, https://insurance.utah.gov, and include instructions on how the public may respond to the application.

(b) The commissioner may not take final action on the application until at least 30 days after posting the notice required in Subsection (5)(a).

(c)

(i) The commissioner shall notify the applicant in writing of the final action.

(ii) If the application is approved, the notice shall state the certified reinsurer's rating.

(d) The commissioner shall publish on the department's website a list of all certified reinsurers and their ratings.

(e) An assuming insurer shall meet the following requirements to qualify for certification:

(i) be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction, as determined by the commissioner under Subsection (7);

(ii)

(A) maintain capital and surplus, or its equivalent, of not less than $250 million, calculated in accordance with Subsection (5)(f)(ii)(H); and

(B) this requirement may be satisfied by an association including incorporated and individual unincorporated underwriters having:

(I) minimum capital and surplus equivalents, net of liabilities, of at least $250 million; and

(II) a central fund containing a balance of at least $250 million;

(iii)

(A) the assuming insurer shall maintain financial strength ratings from two or more rating agencies acceptable to the commissioner;

(B) the ratings shall:

(I) be based on interactive communication between the rating agency and the assuming insurer;

(II) not be based solely on publicly available information; and

(III) be one factor used by the commissioner in determining the rating that is assigned to the assuming insurer; and

(C) acceptable rating agencies include:

(I) Standard & Poor's;

(II) Moody's Investors Service;

(III) Fitch Ratings;

(IV) A.M. Best Company; or

(V) any other nationally recognized statistical rating organization; and

(iv) the certified reinsurer shall comply with all requirements reasonably imposed by the commissioner.

(f)

(i) A certified reinsurer is rated on a legal entity basis, with due consideration given to the group rating where appropriate, except that an association including incorporated and individual unincorporated underwriters that are approved to do business as a single certified reinsurer may be evaluated on the basis of its group rating.

(ii) Factors that may be considered as part of the evaluation process include:

(A) a certified reinsurer's maximum financial strength rating, calculated based on Table 2;

(I) the lowest financial strength rating given by an approved rating agency is used; and

(II) a certified reinsurer shall maintain at least two financial strength ratings to maintain eligibility;

TABLE 2
Rating	Best	S&P	Moody's	Fitch
Secure -- 1	A++	AAA	Aaa	AAA
Secure -- 2	A+	AA+,	Aa1, Aa2,	AA+,
		AA, AA-	Aa3	AA, AA-
Secure -- 3	A	A+, A	A1, A2	A+, A
Secure -- 4	A-	A-	A3	A-
Secure -- 5	B++, B+	BBB+, BBB, BBB-	Baa1, Baa2, Baa3	BBB+, BBB, BBB-
Vulnerable -- 6	B, B-, C++, C+, C, C-, D, E, F	BB+, BB, BB-, B+, B, B-, CCC, CC, C, D, R	Ba1, Ba2, Ba3, B1, B2, B3, Caa, Ca, C	BB+, BB, BB-, B+, B, B-, CCC+, CC, CCC-, DD

(B) the business practices of a certified reinsurer dealing with its ceding insurers, including its record of compliance with reinsurance contractual terms and obligations;

(C) for certified reinsurers domiciled in the U.S., a review of the most recent applicable NAIC Annual Statement Blank, either Schedule F for property and casualty reinsurers or Schedule S for life and health reinsurers, available on the department's website, https://insurance.utah.gov;

(D) for certified reinsurers not domiciled in the U.S., an annual review of Form CR-F for property and casualty reinsurers or Form CR-S for life and health reinsurers, available on the department's website, https://insurance.utah.gov;

(E) a certified reinsurer's reputation for prompt payment of claims under reinsurance agreements, based on an analysis of a ceding insurer's Schedule F reporting of overdue reinsurance recoverables, including the proportion of obligations that are more than 90 days past due or are in dispute, with specific attention given to obligations payable to companies that are in delinquency, administrative proceedings, or receivership;

(F) regulatory action against the certified reinsurer;

(G) the report of the independent auditor on a financial statement of the insurance enterprise, under Subsection (5)(f)(ii)(H);

(H) for a certified reinsurer not domiciled in the U.S.:

(I) audited financial statements, regulatory filings, and actuarial opinions, filed with the non-U.S. jurisdiction supervisor, translated into English; and

(II) the audited financial statements filed with the non-U.S. jurisdiction supervisor for the last two years;

(I) the liquidation priority of obligations to a ceding insurer in the certified reinsurer's domiciliary jurisdiction in the context of an insolvency proceeding;

(J) a certified reinsurer's participation in any solvent scheme of arrangement, or similar procedure, that involves U.S. ceding insurers, if the commissioner received prior notice from a certified reinsurer that proposes participation by the certified reinsurer in a solvent scheme of arrangement; and

(K) any other information relevant to the commissioner.

(g) Based on the analysis conducted under Subsection (5)(f)(ii)(E) of a certified reinsurer's reputation for prompt payment of claims, the commissioner may make appropriate adjustments in the security that the certified reinsurer is required to post to protect its liabilities to U.S. ceding insurers, provided the commissioner increases the security the certified reinsurer is required to post by one rating level under Subsection (5)(f)(ii) if the commissioner finds that:

(A) more than 15% of the certified reinsurer's ceding insurance clients have overdue reinsurance recoverables on paid losses of 90 days or more that are not in dispute and exceed $100,000 for each cedent; or

(B) the aggregate amount of reinsurance recoverables on paid losses that are not in dispute that are overdue by 90 days or more exceeds $50 million.

(h) The assuming insurer shall file with the commissioner a completed Form CR-1, available on the department's website, https://insurance.utah.gov, evidencing its:

(i) submission to the jurisdiction of this state;

(ii) appointment of the commissioner as an agent for service of process; and

(iii) agreement to provide security for 100% of the assuming insurer's liabilities attributable to reinsurance ceded by U.S. ceding insurers if it resists enforcement of a final U.S. judgment.

(i) The commissioner may not certify any assuming insurer that is domiciled in a jurisdiction that the commissioner determines does not adequately and promptly enforce final U.S. judgments or arbitration awards.

(j)

(i) The certified reinsurer shall agree to meet applicable information filing requirements as determined by the commissioner for an initial application for certification and on an ongoing basis.

(ii) All information submitted by a certified reinsurer that is not public information subject to disclosure is exempted from disclosure under Title 63G, Chapter 2, Government Records Access and Management Act, and is withheld from public disclosure.

(k) A certified reinsurer shall notify or file with the commissioner the following:

(i) within 10 days of any regulatory action taken against the certified reinsurer:

(A) any change in the provisions of its domiciliary license; or

(B) any change in rating by an approved rating agency, including a statement describing the changes and the reasons therefor;

(ii) Form CR-F or CR-S annually, as applicable;

(iii) annually, a report of the independent auditor on the financial statements of the insurance enterprise;

(iv) the most recent audited financial statements, regulatory filings, and actuarial opinion filed with the certified reinsurer's supervisor, translated into English;

(v) upon initial certification, audited financial statements for the last two years filed with the certified reinsurer's supervisor;

(vi) at least annually, an updated list of all disputed and overdue reinsurance claims regarding reinsurance assumed from U.S. domestic ceding insurers;

(vii) a certification from the certified reinsurer's domestic regulator that the certified reinsurer is in good standing and maintains capital in excess of the jurisdiction's highest regulatory action level; and

(viii) any other information the commissioner reasonably requires.

(l) A change in rating or revocation of certification is subject to the following:

(i) in the case of a downgrade by a rating agency or other disqualifying circumstance, the commissioner shall assign a new rating to the certified reinsurer under Subsection (5)(f)(ii)(A);

(ii) the commissioner may suspend, revoke, or modify a certified reinsurer's certification if:

(A) the certified reinsurer fails to meet its obligations or security requirements under this section; or

(B) other financial or operating results of the certified reinsurer, or documented significant delays in payment by the certified reinsurer, lead the commissioner to reconsider the certified reinsurer's ability or willingness to meet its contractual obligations;

(iii) if a certified reinsurer's rating is upgraded by the commissioner, the certified reinsurer may meet the security requirements applicable to its new rating on a prospective basis, but the commissioner requires the certified reinsurer to post security under the previously applicable security requirements as to all contracts in force on or before the effective date of the upgraded rating;

(iv) if a certified reinsurer's rating is downgraded by the commissioner, the commissioner requires the certified reinsurer to meet the security requirements applicable to its new rating for all business it assumed as a certified reinsurer;

(v) if the commissioner revokes a certified reinsurer's certification for the ceding insurer to continue to take credit for reinsurance ceded to the assuming insurer:

(A) the assuming insurer shall post security under Section R590-173-11; or

(B) if the funds continue to be held in trust under Section R590-173-7, the commissioner may allow additional credit equal to the ceding insurer's pro rata share of such funds, discounted to reflect the risk of uncollectability and anticipated expenses of trust administration; and

(vi) notwithstanding the change of a certified reinsurer's rating or revocation of its certification, a domestic insurer that cedes reinsurance to a certified reinsurer may not be denied credit for reinsurance for a period of three months for all reinsurance ceded to that certified reinsurer unless the reinsurance is found by the commissioner to be at high risk of uncollectability.

(6) If, upon conducting an evaluation under this section with respect to the reinsurance supervisory system of any non-U.S. assuming insurer, the commissioner determines that the jurisdiction is recognized as a qualified jurisdiction, the commissioner shall:

(a) publish notice and evidence of the recognition on the department's website, https://insurance.utah.gov; and

(b) establish a procedure to withdraw recognition of the jurisdiction that is no longer qualified.

(7) If the domiciliary jurisdiction of a non-U.S. assuming insurer is eligible to be recognized as a qualified jurisdiction under Subsection (6), the commissioner shall:

(a) evaluate the reinsurance supervisory system of the non-U.S. jurisdiction, both initially and on an ongoing basis;

(b) consider the rights, benefits, and extent of reciprocal recognition afforded by the non-U.S. jurisdiction to reinsurers licensed and domiciled in the U.S.;

(c) determine the appropriate approach for evaluating the qualifications of such jurisdictions;

(d) create and publish a list of jurisdictions whose reinsurers are approved by the commissioner as eligible for certification;

(e) obtain an agreement from a qualified jurisdiction to share information and cooperate with the commissioner with respect to all certified reinsurers domiciled in that jurisdiction;

(f) consider additional factors, at the commissioner's discretion, including:

(i) the framework the assuming insurer is regulated under;

(ii) the structure and authority of the domiciliary regulator regarding solvency regulation requirements and financial surveillance;

(iii) the substance of financial and operating standards for an assuming insurer in the domiciliary jurisdiction;

(iv) the form and substance of financial reports required to be filed or made publicly available by a reinsurer in the domiciliary jurisdiction;

(v) the accounting principles used;

(vi) the domiciliary regulator's willingness to cooperate with U.S. regulators in general and the commissioner in particular;

(vii) the history of performance by assuming insurers in the domiciliary jurisdiction;

(viii)

(A) any documented evidence of substantial problems with the enforcement of final U.S. judgments in the domiciliary jurisdiction; and

(B) a jurisdiction may not be considered a qualified jurisdiction if the commissioner determines that it does not adequately and promptly enforce final U.S. judgments or arbitration awards;

(ix) any relevant international standards or guidance with respect to mutual recognition of reinsurance supervision adopted by the International Association of Insurance Supervisors or successor organization; and

(x) any relevant factors established by the commissioner;

(g) consider the list of qualified jurisdictions published through the NAIC committee process in determining qualified jurisdictions;

(h) provide thoroughly documented justification of the criteria under Subsections (7)(f)(i) through (7)(f)(x) if the commissioner approves a jurisdiction as qualified; and

(i) recognize as qualified jurisdictions, U.S. jurisdictions that meet the requirements for accreditation under the NAIC financial standards and accreditation program.

(8) If an applicant for certification is certified as a reinsurer in an NAIC accredited jurisdiction, the commissioner may:

(a) defer to that jurisdiction's certification;

(b) defer to the rating assigned by that jurisdiction if the assuming insurer:

(i) files with the commissioner a completed Form CR-1, available on the department's website, https://insurance.utah.gov; and

(ii) provides additional information required by the commissioner; and

(c) consider the assuming insurer to be a certified reinsurer in this state.

(9) A change in a certified reinsurer's status or rating in another jurisdiction automatically applies in this state as of the date it takes effect in the other jurisdiction.

(10) The certified reinsurer shall notify the commissioner of any change in its status or rating within 10 days after receiving notice of the change.

(11) In recognizing a certification from an accredited jurisdiction, the commissioner may:

(a) withdraw recognition of the other jurisdiction's rating at any time and assign a new rating under Subsection (5)(l); and

(b) withdraw recognition of the other jurisdiction's certification, upon written notice to the certified reinsurer.

(12) Unless the commissioner suspends or revokes a certified reinsurer's certification, the certified reinsurer's certification is in good standing for three months, and shall be extended if additional time is necessary to consider the assuming insurer's application for certification in this state.

(13) In addition to the requirements of Section R590-173-15, a reinsurance contract entered into or renewed under this section shall include a proper funding clause requiring the certified reinsurer to provide and maintain security in an amount sufficient to avoid the imposition of any financial statement penalty on the ceding insurer for reinsurance ceded to the certified reinsurer.

(14) The commissioner shall comply with all reporting and notification requirements established by the NAIC regarding certified reinsurers and qualified jurisdictions.

Utah Admin. Code R590-173-8

Amended by Utah State Bulletin Number 2017-3, effective 1/10/2017

Adopted by Utah State Bulletin Number 2022-12, effective 6/7/2022